Construction Industry Forecasts

One has the sense that employment growth in Canada may be starting to weaken. In May 2008, the number of new jobs did increase, but only marginally (+8.000). Furthermore, the progression of increase has been stepping downward since the beginning of this year.

First quarter Gross Domestic Product (GDP) growth was negative (-0.3%). Housing starts have averaged less than 220,000 units (annualized) in the last two months after reaching much loftier levels in February and March (over 240,000 units). In non-residential building markets, CanaData’s starts figures have been disappointing through April.

The major problems in the economy have been mainly due to weak export sales (auto and forestry related) and a large downward adjustment in inventories (in response to weak U.S. auto demand). As summer progresses, the moderation in housing starts will have a considerable impact throughout the economy. A good portion of retail sales (e.g., appliances, carpets, home reno products) is highly tied to residential markets, as is much of non-auto manufacturing.

Canada is still way outperforming the U.S. in job growth (+2.0% year over year versus +0.2% respectively). Moreover, for one of the few times ever, the unemployment rate in the United States (5.1%) has almost risen to the same level as in Canada (6.1%).

The gap in services job growth is similarly large (+2.4% in Canada versus +0.8% in the U.S.). Furthermore, where the disparity was significant in the opposite direction − in manufacturing job growth − Canada (-3.3%) made a significant recovery in the latest month to almost rise to the same level as the U.S. (-2.5%). Since the loonie and the greenback have been at virtual parity since last September, it may be the case that both countries are now having similar success in selling to non-North American markets.

The real leaders in job creation in Canada so far this year have been public administration (9.1%) and construction (+8.9%). Office-based employment growth continues to keep pace with the overall increase in jobs (+2.0%), while accommodation and food services employment is quite weak (0.0%). The latter is partly explained by the drop in cross-border visitors (see earlier blog entry). Retail trade employment is essentially flat (+0.5%), which is perhaps an early-warning indicator of more unpleasant news to come.

(Please see also Market Insights story, with graphs.)

Two Key Benchmark Measures: There are two benchmark figures to target with respect to Canadian employment: (1) +1.5% year-over-year job growth; and (2) +17,000 as the long-term average increase in the month-to-month number of jobs. As long as these targets are being approached or exceeded, it is hard to say too much negative about the Canadian labour market.

If the latest figures fall short, the economy may still be okay as long as some other key indicators are positive. However, if the latest figures fall short and there are other indications of slowdown, then warning signs start to flash about overall weakness in the economy. Job growth leads to income growth, which drives consumer spending (55% to 60% of Canadian Gross Domestic Product).

Alex Carrick